nk-10q_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016  

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                 to                

Commission file number: 001-37507

 

NANTKWEST, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

43-1979754

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3530 John Hopkins Court

San Diego, California

 

92121

(Address of principal executive offices)

 

(Zip Code)

(858) 633-0300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

o

 

 

 

 

Non-accelerated filer

x  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of May 10, 2016, the registrant had 81,977,285 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Part I – Financial Information

 

 

 

 

 

 

Item 1.

  

Financial Statements

 

1

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

31

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

Item 3.

 

Defaults Upon Senior Securities

 

70

Item 4.

 

Mine Safety Disclosures

 

70

Item 5.

 

Other Information

 

70

Item 6.

 

Exhibits

 

72

 

 

 

-i-


NANTKWEST, INC.

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

NantKwest, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share amounts)

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,250

 

 

$

175,908

 

Prepaid expenses and other current assets

 

 

3,776

 

 

 

3,322

 

Marketable securities

 

 

158,509

 

 

 

118,310

 

Total current assets

 

 

225,535

 

 

 

297,540

 

Marketable securities, noncurrent

 

 

116,197

 

 

 

55,135

 

Property and equipment, net

 

 

7,156

 

 

 

5,523

 

Intangible assets, net

 

 

6,844

 

 

 

7,292

 

Other assets

 

 

1,696

 

 

 

1,359

 

Total assets

 

$

357,428

 

 

$

366,849

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,105

 

 

$

2,085

 

Accrued expenses

 

 

4,716

 

 

 

2,575

 

Due to related parties

 

 

1,674

 

 

 

1,352

 

Other current liabilities

 

 

363

 

 

 

136

 

Total current liabilities

 

 

7,858

 

 

 

6,148

 

Build-to-suit liability, less current portion

 

 

2,451

 

 

 

2,468

 

Deferred rent

 

 

1,344

 

 

 

845

 

Deferred revenue

 

 

203

 

 

 

228

 

Deferred tax liability

 

 

1,072

 

 

 

1,165

 

Total liabilities

 

 

12,928

 

 

 

10,854

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 81,930,998 and

   81,311,686 issued and outstanding as of March 31, 2016 and December 31, 2015

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

625,200

 

 

 

606,555

 

Accumulated other comprehensive income (loss)

 

 

318

 

 

 

(192

)

Accumulated deficit

 

 

(281,026

)

 

 

(250,376

)

Total stockholders’ equity

 

 

344,500

 

 

 

355,995

 

Total liabilities and stockholders’ equity

 

$

357,428

 

 

$

366,849

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


NantKwest, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except for share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenue

 

$

6

 

 

$

120

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,944

 

 

 

603

 

Selling, general and administrative

 

 

26,651

 

 

 

31,618

 

Total operating expenses

 

 

31,595

 

 

 

32,221

 

Loss from operations

 

 

(31,589

)

 

 

(32,101

)

Other income (expense):

 

 

 

 

 

 

 

 

Investment income, net

 

 

768

 

 

 

32

 

Change in fair value of warrant liability

 

 

 

 

 

(883

)

Other income, net

 

 

28

 

 

 

104

 

Total other income (expense)

 

 

796

 

 

 

(747

)

Loss before income taxes

 

 

(30,793

)

 

 

(32,848

)

Income tax (benefit) expense, net

 

 

(143

)

 

 

1

 

Net loss

 

$

(30,650

)

 

$

(32,849

)

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.38

)

 

$

(0.54

)

 

 

 

 

 

 

 

 

 

Weighted average number of shares during the period:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

81,574,709

 

 

 

61,137,625

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


NantKwest, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Net loss

 

$

(30,650

)

 

$

(32,849

)

Other comprehensive income, net of income taxes:

 

 

 

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

 

517

 

 

 

 

Reclassification of net realized gains on available-for-sale securities included in net

   income

 

 

(7

)

 

 

 

Total other comprehensive income

 

 

510

 

 

 

 

Comprehensive loss

 

$

(30,140

)

 

$

(32,849

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


NantKwest, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands, except for share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2015

 

 

81,311,686

 

 

$

8

 

 

$

606,555

 

 

$

(192

)

 

$

(250,376

)

 

$

355,995

 

Exercise of stock options

 

 

917,383

 

 

 

 

 

657

 

 

 

 

 

 

 

657

 

Stock-based compensation expense

 

 

 

 

 

 

20,535

 

 

 

 

 

 

 

20,535

 

Exercise of warrants

 

 

1,929

 

 

 

 

 

3

 

 

 

 

 

 

 

3

 

Repurchase of common stock

 

 

(300,000

)

 

 

 

 

(2,550

)

 

 

 

 

 

 

(2,550

)

Other comprehensive loss, net

 

 

 

 

 

 

 

 

510

 

 

 

 

 

510

 

Net loss

 

 

 

 

 

 

 

 

 

 

(30,650

)

 

 

(30,650

)

Balance at March 31, 2016

 

 

81,930,998

 

 

$

8

 

 

$

625,200

 

 

$

318

 

 

$

(281,026

)

 

$

344,500

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


NantKwest, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(30,650

)

 

$

(32,849

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

485

 

 

 

26

 

Stock-based compensation expense

 

 

20,535

 

 

 

24,523

 

Deferred income tax benefit

 

 

(145

)

 

 

 

Change in value of warrant liability

 

 

 

 

 

883

 

Non-cash interest items

 

 

(295

)

 

 

 

Loss incurred by Inex Bio

 

 

 

 

 

57

 

Loss on disposal of assets

 

 

15

 

 

 

 

Amortization of net premiums on marketable securities

 

 

426

 

 

 

 

Gain on sales of marketable securities

 

 

(46

)

 

 

 

Gain on settlement of note payable

 

 

 

 

 

(133

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

105

 

Prepaid and other current assets

 

 

(160

)

 

 

71

 

Other assets

 

 

(337

)

 

 

(87

)

Accounts payable

 

 

(737

)

 

 

99

 

Accrued expenses and other liabilities

 

 

1,236

 

 

 

(3

)

Due to related parties

 

 

322

 

 

 

 

Deferred rent

 

 

500

 

 

 

 

Deferred revenue

 

 

(5

)

 

 

(64

)

Net cash used in operating activities

 

 

(8,856

)

 

 

(7,372

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,067

)

 

 

(38

)

Purchase of Inex Bio Inc., net of cash acquired

 

 

 

 

 

(1,818

)

Purchases of marketable securities

 

 

(111,397

)

 

 

 

Sales of marketable securities

 

 

10,552

 

 

 

 

Net cash used in investing activities

 

 

(101,912

)

 

 

(1,856

)

Financing activities:

 

 

 

 

 

 

 

 

Payments on notes payable

 

 

 

 

 

(132

)

Proceeds from exercise of stock options and warrants

 

 

660

 

 

 

110

 

Repurchase of common stock

 

 

(2,550

)

 

 

 

Net cash used in financing activities

 

 

(1,890

)

 

 

(22

)

Net decrease in cash and cash equivalents

 

 

(112,658

)

 

 

(9,250

)

Cash and cash equivalents, beginning of period

 

 

175,908

 

 

 

59,104

 

Cash and cash equivalents, end of period

 

$

63,250

 

 

$

49,854

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

1

 

 

$

1

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of warrants in Inex Bio, Inc. acquisition

 

$

 

 

$

5,170

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

1,074

 

 

$

 

Unrealized gain on marketable securities

 

$

796

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


NantKwest, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

 

 

1. Description of Business and Basis of Presentation

Organization

NantKwest, Inc. (the Company) was incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation. On January 22, 2010, the Company changed its name to Conkwest, Inc., and on July 10, 2015, the Company changed its name to NantKwest, Inc. The Company is a biotechnology company headquartered in San Diego, California with certain operations in Culver City, California. The Company is commercially developing targeted direct-acting immunotherapeutic agents for a variety of clinical conditions.

The Company holds the exclusive right to commercialize activated natural killer (aNK) cells, a commercially viable natural killer cell-line, and a variety of genetically modified derivatives capable of killing cancer and virally infected cells. The Company owns corresponding U.S. and foreign composition and methods-of-use patents and applications covering the clinical use of aNK cells as a therapeutic to treat a spectrum of clinical conditions.

The Company also licensed exclusive commercial rights to a portfolio of CD16 bearing aNK cells along with the corresponding U.S. and foreign composition and methods-of-use patents and applications covering the non-clinical use in laboratory testing of monoclonal antibodies as well as clinical use as a therapeutic to treat cancers in combination with antibody products. The Company has licensed or sub-licensed its cell lines and intellectual property to numerous pharmaceutical and biotechnology companies for such non-clinical uses.

The Company retains exclusive worldwide rights to clinical and research data, intellectual property and know-how developed with the Company’s aNK cells, as well as the only clinical grade master cell bank.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet at March 31, 2016, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2016, the condensed consolidated statements of cash flows for the three months ended March 31, 2016, and the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2016, have been prepared by the management of Company and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended December 31, 2015 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K.  Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

Principles of Consolidation

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Inex Bio, Inc., and have been prepared in accordance with GAAP. All intercompany amounts have been eliminated.

Liquidity

As of March 31, 2016, the Company had an accumulated deficit of approximately $281.0 million. The Company also had negative cash flow from operations of approximately $8.9 million during the three months ended March 31, 2016. The Company expects that it will likely need additional capital to further fund development of, and seek regulatory approvals for, its product candidates, and begin to commercialize any approved products.

6


The Company is currently focused primarily on the development of immunotherapeutic treatments for cancers and debilitating viral infections using targeted cancer killing cell lines, and believes such activities will result in the Company’s continued incurrence of significant research and development and other expenses related to those programs. If the clinical trials for any of the Company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of the Company’s product candidates, if approved, fails to achieve market acceptance, the Company may never become profitable. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. The Company intends to cover its future operating expenses through cash and cash equivalents and marketable securities on hand and through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional financing may not be available to the Company when needed and, if available, financing may not be obtained on terms favorable to the Company or its stockholders.

While the Company expects its existing cash and cash equivalents and marketable securities will enable it to fund operations and capital expenditure requirements for at least the next 24 months, it may not have sufficient funds to reach commercialization. Failure to obtain adequate financing when needed may require the Company to delay, reduce, limit or terminate some or all of its development programs or future commercialization efforts or grant rights to develop and market product candidates that the Company might otherwise prefer to develop and market itself which could adversely affect the Company’s ability to operate as a going concern. If the Company raises additional funds from the issuance of equity securities, substantial dilution to existing stockholders may result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.

2. Summary of Significant Accounting Policies

With the exception of the preclinical and clinical trial accrual policy discussed below, there have been no significant changes to the items that the Company disclosed as its summary of significant accounting policies in the Annual Report on Form 10-K for the year ended December 31, 2015.

Preclinical and Clinical Trial Accruals

As part of the process of preparing the financial statements, the Company is required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.  The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

The Company estimates clinical trial and research agreement related expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations and other vendors that conduct clinical trials and research on the Company’s behalf.  In accruing clinical and research related fees, the Company estimates the time period over which services will be performed and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to the valuation of warrants, stock-based compensation, the valuation allowance for deferred tax assets, preclinical and clinical trial accruals, and the valuation of build-to-suit lease assets. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Basic and Diluted Net Loss per Share of Common Stock

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

7


For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive. The following table details those securities that have been excluded from the computation of potentially dilutive securities:

 

 

 

As of  March 31,

 

 

 

2016

 

 

2015

 

Outstanding options

 

 

7,788,883

 

 

 

9,257,996

 

Outstanding restricted stock units

 

 

1,329,438

 

 

 

 

Outstanding warrants

 

 

17,817,687

 

 

 

22,610,078

 

Total

 

 

26,936,008

 

 

 

31,868,074

 

 

Amounts in the table above reflect the common stock equivalents of the noted instruments.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2016-02, or ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for operating leases with lease terms greater than twelve months in the balance sheet. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of the initiative to reduce complexity in accounting standards. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, or classification on the statement of cash flows.  ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-09 on its consolidated financial statements and disclosures.

 

 

3. Financial Statement Details

Prepaid Expenses and Other Current Assets

As of March 31, 2016 and December 31, 2015, prepaid expenses and other current assets were made up of (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Interest receivable - marketable securities

 

$

1,206

 

 

$

911

 

Prepaid services

 

 

1,182

 

 

 

631

 

Prepaid license fees

 

 

505

 

 

 

101

 

Prepaid legal fees

 

 

350

 

 

 

350

 

Prepaid insurance

 

 

298

 

 

 

466

 

Due from related parties (Note 7)

 

 

45

 

 

 

217

 

Tax refund receivable

 

 

 

 

 

646

 

Other

 

 

190

 

 

 

 

 

 

$

3,776

 

 

$

3,322

 

 

8


Property and Equipment, Net

As of March 31, 2016 and December 31, 2015, property and equipment was made up of (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Construction in progress

 

$

6,753

 

 

$

5,136

 

Equipment

 

 

297

 

 

 

241

 

Leasehold improvements

 

 

182

 

 

 

182

 

Furniture & fixtures

 

 

123

 

 

 

125

 

Software

 

 

4

 

 

 

6

 

 

 

 

7,359

 

 

 

5,690

 

Accumulated depreciation

 

 

(203

)

 

 

(167

)

 

 

$

7,156

 

 

$

5,523

 

 

Construction in progress includes the estimated fair market value of the building under the Company’s build-to-suit lease for $2.7 million of which the Company is the "deemed owner" for accounting purposes only. See Note 6.

Intangible Assets

As of March 31, 2016 and December 31, 2015, intangible assets were made up of (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Technology license*

 

$

8,636

 

 

$

8,636

 

Less accumulated amortization

 

 

(1,792

)

 

 

(1,344

)

 

 

$

6,844

 

 

$

7,292

 

 

*Inclusive of $1.5 million intangible asset related to the deferred tax liability, which is not amortized.

Amortization expense was $0.4 million, and $0 for the three months ended March 31, 2016 and 2015, respectively.  Amortization for the Company’s technology license is included in research and development expense on the condensed consolidated statement of operations.

Other Assets

As of March 31, 2016 and December 31, 2015, other assets were made up of (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Equipment not placed in service

 

$

609

 

 

$

624

 

License fees

 

 

423

 

 

 

 

Software license and implementation costs

 

 

415

 

 

 

391

 

Security deposit

 

 

249

 

 

 

344

 

 

 

$

1,696

 

 

$

1,359

 

 

9


Accrued Expenses

As of March 31, 2016 and December 31, 2015, accrued expenses were made up of (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Accrued bonuses

 

$

1,801

 

 

$

1,359

 

Accrued construction costs

 

 

992

 

 

 

132

 

Accrued compensation

 

 

828

 

 

 

348

 

Accrued professional and service fees

 

 

702

 

 

 

367

 

Accrued clinical trials

 

 

181

 

 

 

 

Accrued franchise and property taxes

 

 

81

 

 

 

225

 

Other

 

 

131

 

 

 

144

 

 

 

$

4,716

 

 

$

2,575

 

 

Investment Income, Net

Net investment income includes interest income from all bank accounts as well as marketable securities, net realized gains or losses on sales of investments and the amortization of the premiums and discounts of the investments and is as follows for the three months ended March 31, 2016 and 2015 (in thousands).

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Interest income

 

$

1,193

 

 

$

32

 

Investment amortization accretion expense, net

 

 

(426

)

 

 

 

Net realized gains on investments

 

 

1

 

 

 

 

 

 

$

768

 

 

$

32

 

 

Interest income includes interest from the Company’s bank deposits.  The Company did not recognize an impairment loss on any investments during the three months ended March 31, 2016 and 2015.

 

 

4. Cash Equivalents and Marketable Securities

As of March 31, 2016, all of the Company’s marketable securities are classified as available-for-sale and are scheduled to mature within 3.6 years.  At March 31, 2016, the detail of the Company’s cash equivalents and marketable securities is as follows (in thousands):

 

 

March 31, 2016

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

$

28,053

 

 

$

17

 

 

$

 

 

$

28,070

 

Government sponsored securities

 

37,158

 

 

 

12

 

 

 

 

 

 

37,170

 

Corporate debt securities

 

111,315

 

 

 

75

 

 

 

(22

)

 

 

111,368

 

Foreign government bonds

 

6,911

 

 

 

5

 

 

 

(3

)

 

 

6,913

 

Current portion

 

183,437

 

 

 

109

 

 

 

(25

)

 

 

183,521

 

Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored securities

 

17,039

 

 

 

68

 

 

 

 

 

 

17,107

 

Corporate debt securities

 

94,619

 

 

 

470

 

 

 

(15

)

 

 

95,074

 

Foreign government bonds

 

4,009

 

 

 

7

 

 

 

 

 

 

4,016

 

Noncurrent portion

 

115,667

 

 

 

545

 

 

 

(15

)

 

 

116,197

 

Total

$

299,104

 

 

$

654

 

 

$

(40

)

 

$

299,718

 

 

The cash equivalent portions included in the current fair values above are $23.0 million and $2.0 million for government sponsored securities and corporate debt securities, respectively.

10


At March 31, 2016, 16 of the securities and bonds are in an unrealized loss position.  No securities have been in an unrealized loss position for greater than 12 months. Available-for-sale investments that had been in an unrealized loss position for less than 12 months at March 31, 2016 are as follows (in thousands): 

 

 

 

March 31, 2016

 

 

 

Estimated Fair Value

 

 

Gross Unrealized Losses

 

Corporate debt securities

 

$

37,658

 

 

$

(37

)

Foreign government bonds

 

 

1,894

 

 

 

(3

)

Total

 

$

39,552

 

 

$

(40

)

 

The Company evaluated its securities for other-than-temporary impairment and concluded that the decline in value was primarily caused by current economic and market conditions.  The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.  Therefore, the Company did not recognize any other-than-temporary impairment loss during the three months ended March 31, 2016.

5. Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis (ASC Topic 820), the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions as follows:

 

·

Level 1—Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

 

·

Level 2—Observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

·

Level 3— Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.  The inputs are unobservable in the market and significant to the instruments valuation.  

The following table presents the Company’s hierarchy for its assets measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015:

 

 

 

Fair Value Measurements at March 31, 2016

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents*

 

$

25,011

 

 

$

 

 

$

25,011

 

 

$

 

Commercial paper

 

 

28,070

 

 

 

 

 

 

28,070

 

 

 

 

Government sponsored securities

 

 

14,159

 

 

 

 

 

 

14,159

 

 

 

 

Corporate debt securities

 

 

109,368

 

 

 

 

 

 

109,368

 

 

 

 

Foreign government bonds

 

 

6,913

 

 

 

 

 

 

6,913

 

 

 

 

Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored securities

 

 

17,107

 

 

 

 

 

 

17,107

 

 

 

 

Corporate debt securities

 

 

95,074

 

 

 

 

 

 

95,074

 

 

 

 

Foreign government bonds

 

 

4,016

 

 

 

 

 

 

4,016

 

 

 

 

Total assets measured at fair value

 

$

299,718

 

 

$

 

 

$

299,718

 

 

$

 

 

*This amount excludes $38.2 million in depository institutions which are classified as Level 1 assets.

 

11


 

 

Fair Value Measurements at December 31, 2015

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents*

 

$

18,039

 

 

$

 

 

$

18,039

 

 

$

 

Commercial paper

 

 

24,917

 

 

 

 

 

 

24,917

 

 

 

 

Corporate debt securities

 

 

86,450

 

 

 

 

 

 

86,450

 

 

 

 

Foreign government bonds

 

 

6,943

 

 

 

 

 

 

6,943

 

 

 

 

Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

51,131

 

 

 

 

 

 

51,131

 

 

 

 

Foreign government bonds

 

 

4,004

 

 

 

 

 

 

4,004

 

 

 

 

Total assets measured at fair value

 

$

191,484

 

 

$

 

 

$

191,484

 

 

$

 

 

*This amount excludes $157.9 million in depository institutions which are classified as Level 1 assets.

 

6. Commitments and Contingencies

Contingencies

In March 2009, the Company received a final rejection in one of the Company’s original patent applications pertaining to certain limited methods of use claims for NK-92 from the U.S. Patent and Trademark Office (the USPTO) (but the USPTO allowed claims on all of the other proposed claims, including other methods of use). The Company appealed this decision with the USPTO Board of Appeals and, in the fall of 2013, the Board of Appeals reversed the Examiner’s rejection of the claim to certain limited methods of use with NK-92, but affirmed the Examiner’s rejection of the remaining patent claims. In December 2013, the Company brought an action in the U.S. District Court for the Eastern District of Virginia to review the decision of the USPTO as the Company disagreed with the decision as to the certain limited non-allowed claims. On September 2, 2015, the U.S. District Court granted the USPTO’s motion for summary judgment. The Company is in the process of appealing the decision.  Based on the information available at present, the Company cannot reasonably estimate a range of loss for this action. Accordingly, no liability associated with this action has been accrued. The Company is expensing legal costs associated with defending this litigation as the costs are incurred.

Securities Litigation

In March 2016, a securities class action complaint was filed in federal district court in California against the Company related to the recently announced restatement of certain interim financial statements for the periods ended June 30, 2015 and September 30, 2015. The case, Sudunagunta v. NantKwest, Inc., et al., is currently pending before the United States District Court for the Central District of California. The complaint names the Company and certain of its current and former officers and directors, as defendants. The complaint alleges that the defendants misrepresented material facts and/or mislead investors regarding the errors in the consolidated financial statements related to stock-based awards to the chairman and chief executive officer (CEO) and build-to-suit lease accounting related to one of the Company’s research and development and good manufacturing practices facilities, and regarding the lack of effective internal financial controls. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks unspecified damages, costs and attorneys’ fees, and equitable/injunctive or other relief. Management intends to vigorously defend these proceedings. At this time, the Company cannot predict how the Court will rule on the merits of the claims and/or the scope of the potential loss in the event of an adverse outcome. Therefore, based on the information available at present, the Company cannot reasonably estimate a range of loss for this action.  Should the Company ultimately be found liable, the liability could have a material adverse effect on the Company’s results of operations for the period or periods in which it is incurred.

Contractual Obligations - Leases

The Company leases: (i) office space in Cardiff-by-the-Sea, California; (ii) a research facility in Boston, Massachusetts on a month-to-month basis; (iii) a research facility in Woburn, Massachusetts (discussed further below) that will replace the Boston facility once it is ready for occupation; (iv) office space in Cary, North Carolina; (iv) a research and manufacturing facility in San Diego, California and; (v) office and research space in Culver City, California from a related party (Note 7).

In March 2016, the Company entered into a lease agreement for an approximately 7,893 square foot facility in Woburn, Massachusetts for a research and development laboratory, related office and other related uses.  The base rent is $0.2 million per year with a $1 per square foot annual increase on each anniversary date.

12


In March 2016, the Company extended the lease on the Cardiff-by-the-Sea, California office space until August 31, 2018.  The current annual lease payment is $0.1 million, which will increase to $0.2 million and $0.2 million at September 1, 2016 and 2017, respectively.

In November 2015, the Company entered into a facility license agreement with NantWorks, LLC (NantWorks), a related party, for office space in Culver City, California, which is to be converted to a research and development laboratory and a Good Manufacturing Practices (GMP) laboratory. The license was effective in May 2015 and extends through December 2020. The annual license fee is $0.6 with annual increases of 3% beginning in January 2017.

The Company is responsible for costs to build out the laboratory and has incurred costs of approximately $3.2 million as of March 31, 2016, which is reflected in construction in progress on the condensed consolidated balance sheet. Additionally, in order for the facility to meet the Company's research and developmen